O 2534 Question 2 4 pts The XYZ Corp issued 8 bonds several

O $25.34 Question 2 4 pts The XYZ Corp. issued 8% bonds several years ago at $975. The bonds currently have an 15% yield to maturity and have five years to maturity. What is the current price of the bonds? O $759.76 $447.94 O $765.35 11110-$1,495.15 4 pts Question 3

Solution

Current Price of bond is $ 765.35 Working: Price of bond is always present value of cash flow from bond. Year Cash flow Discount factor Present Value 1-5 $             80 3.352155 $ 268.17 5 $       1,000 0.497177 $ 497.18 Current Price $ 765.35 Working: Present Value of annuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.15)^-5)/0.15 i 15% = 3.352155 n 5 Present Value of 1 = (1-(1+i)^-n)/i = (1+0.15)^-5 = 0.497177